By Alicia Maher
Authorities in Hong Kong have released the prototype of the city-state’s CBDC, Project Aurum. The platform has two tiers and it features an interbank system carrying out wholesale transactions. It also features an e-wallet system for retail transactions.
A Full-Fledged CBDC Solution
A multilateral collaboration between the Hong Kong Monetary Authority and two other entities resulted in the prototype. The Bank of International Settlement Innovation Hub and the HK Applied Science and Tech Institute are the other two. The Bank of International Settlement made the development public.
Project Aurum, as it is called, is a complete central bank digital currency system. It is made of both interbank and retail operations, according to the international financial body. The BIS press release explained further.
The Project Aurum participants are planning to float two types of digital currencies. The first one would be an intermediate digital currency while the second would be a stablecoin backed by CBDCs.
The second would be circulated within the interbank system. It is also a unique development of CBDCs up to this time. The system has flexibility, safety, and privacy as its core features.
The authors of the pilot project said stablecoins backed by CBDCs are things that have never been seen. Doing it, therefore, felt like what would supplement growing research on stablecoins in the private sector.
Cross-Border Participation
They explained further that, as opposed to private-sector stablecoins, balances are reconciled on Aurum’s stablecoins. They are compared in real-time against the settlement balances of the banks that issue them. It is also done in tandem with the central bank.
The project developers think the system of the stablecoins backed by CBDCs is useful to monetary regulators. It will come in handy when trying to work out the modalities to regulate private stablecoins. Specifically when trying to come up with a verification method for stablecoin backing, which is quite topical.
Three institutions in Hong Kong will have the authority to issue the state-supported digital token. It is the same way its fiat money is run.
Hong Kong is one of the world’s financial powerhouses. But it has been struggling to catch up with other places on CBDC development. Its competition includes mainland China, which is currently expanding its pilot program.
Hong Kong began to explore the CBDC project in March 2021. The HK Monetary Authority announced in September that it was getting ready to try the digital Hong Kong Dollar. It also participated in cross-border CBDC trials with the central banks of China, Thailand, and the UAE.